The present invention relates to the use of financial institution transaction payment cards to facilitate commercial transactions, more particularly to the use of a credit card that can be used to conduct credit purchase transactions for goods and services and credit cash advance transactions to obtain cash.
The technology of payment commerce has adopted a number of terms that are, as used herein, defined as follows, although the terms are not limited exclusively to these definitions.
TABLE 1DefinitionsAcquirerThe financial institution, an independent sales agent of thefinancial institution, and/or financial institution processor that receives from the merchant the financial data relating to a transaction, obtains authorization for the transaction, obtains the funds from the issuer, and remits discounted transaction funds into a merchant deposit account.AuthenticationIn computer security, the process used to verify the identity of a user or the user's eligibility to access an object; verification that a message has not been altered or corrupted; a process used to verify the user of an information system or protected resources.Authorization In payment card systems, the process used to verify that a credit or debit account is valid and holds sufficient credit or funds to cover a particular payment. Authorization is performed before goods or services are provided or cash access is concluded in order to ensure that the card-holder's credit availability or funds on deposit can support payment.CaptureIn payment card systems, the process used by a merchant to claim payment from an issuing financial institution via an acquirer. Capture is performed after goods and services have been provided or delivered. Optionally, capture may be combined with authorization in the case where goods or services are provided at the time of authorization.CardholderA person who has a valid payment card account.Charge-backA name given to the process for a card payment transaction to be returned by a card issuing financial institution to the acquirer for one of several reasons regulated by the interchange card system.ClearingAn entity or system for routing or interchanging an Systemauthorization request for a transaction and the transaction itself to the card issuing financial institution or its agent processor and returning an authorization response to the acquirer or cash advance disbursing bank or its agent processor and effecting funds settlement of the transaction. Such system could be (i) internal to the acquirer (or its processor) for transactions involving other card issuing financial institutions for whom it is a processor, (ii) a card interchange system network such as VISA, MASTERCARD, DISCOVER and others, or(iii) a privately arranged system for an acquirer to routeor interchange transactions with card issuing financial institutions.ConvenienceA revolving credit card account on which a cardholder Card or Useremits payment for the balance due in full each billingperiod to not incur a revolving finance charge.Credit CardA deposit account of the credit card cardholder at theCardholdercredit card issuing financial institution or another Deposit depository financial institution.AccountCredit CardA government chartered, regulated and licensed Issuingdepository financial institution that undertakes the Financialissuance of credit cards to consumers and businesses Institutionand management of a credit card program.HoldA process sometimes called a “memo post” whereby a specified amount of funds in a deposit account are withheld from being available to pay checks or other deductions from the account's balance until a transaction occurs which is identified with theinstruction to withhold availability of specified funds.InterchangeThe process of an acquirer forwarding to a card issuing financial institution card payment transaction data conducted by a card issuing financial institution's cardholders pursuant to rules and regulations of the branded card network or system.Interchange A fee established and regulated by a branded payment Feecard network or system on a payment card transaction that is paid by the acquirer to the card issuing financial institution for purchase transactions or paid by the card issuing financial institution to the cash disbursing financial institution for cash advance transactions.InterchangeInterchange fees received by a card issuing financial Incomeinstitution for card purchase transactions and by a disbursing financial institution for cash advance transactions.MerchantThe equivalent to a physical store where payment cards can be used to pay for goods and services.Open to A daily updated data base referenced for granting an Buy Fileapproval of an authorization inquiry for a cardtransaction that contains the account numbers of issued payment cards and the amount of available funds (for debit cards) and unused line of credit (for creditcards) for each listed account less amounts forany pending authorized transactions or transactionsthat may be in dispute.Payment A credit card or debit card that is issued by a financial Cardinstitution containing a card system mark(s) and shows a relationship between the cardholder and the card issuing financial institution.PersonalA four-digit number issued to or selected by a cardholder Identificationfor use as a security feature to identify the cardholder Number when a payment card is used at an automated teller (PIN Code)machine (ATM), other unattended payment terminal, or merchant payment terminal.RepudiatedA card payment transaction claimed by the cardholder as Transactionhaving not been conducted or authorized by the cardholder.SettlementThe process whereby funds are credited and debited between parties involved in a card payment transaction -usually between financial institutions or their agent processors and the clearing system.TransactionA daily updated credit card cardholder's credit card Hold Filetransactions resulting in uniquely identified holds on the cardholder's deposit account that can only be removedby cardholder instruction to remit payment to thecredit card account or recredit the cardholder's depositaccount in event of a disputed cardholder transactionpursuant to a charge-back.
There are several major types of financial institution issued payment cards. These are summarized in Table 2 below:
TABLE 2Payment Card TypesCharge Cards(see Non-revolving Credit Cards).Convenience Revolving credit cards on which cardholders routinelyUse Creditremit payment in full each billing period to not incur aCardsrevolving finance charge.Debit CardsTransactions access funds on deposit for immediatepayment and settlement.Non-revolving No extended repayment plan - virtually disappeared inCredit Cardsthe U.S. market.(aka “Charge Cards”)Prepaid CardsA form of debit card in which funds are deposited to anaccount for access by the card only - typically forrefunds and gifts as well as pay deposits for“unbanked” and “underbanked” consumers.Revolving Balance repayment can be extended and paid over timeCredit Cardsor may be paid in full each billing period as“Convenience” Use Credit Cards.Secured Revolving credit cards in which the credit line isCredit Cardsdetermined by funds on deposit in either a term savingsaccount or CD or current checking account. The depositonly secures repayment in case of default - developedin the early 1970's by this author to attract savings andloan and other thrift institutions as card issuingmembers of the Visa system.
Separate arrangements can be made between the customer cardholder and the card issuing financial institution to have payments of and against outstanding revolving, non-revolving, and secured credit card accounts automatically paid from deposit account funds. Usually these consist of a single monthly debit to the cardholder's deposit account for a fixed amount or a variable full balance payment amount or minimum payment amount on revolving credit card accounts. A majority of revolving credit card account users are “convenience” users (nearly 60 percent) and remit payment (usually via check or online banking instruction) in full each billing period to not incur a finance charge. As non-revolving credit card accounts are extremely rare in the United States, automatic transfer of a single monthly repayment for such accounts is virtually non-existent.
Many consumers in the current economy are being denied credit cards. This is especially true for consumers who are in a 3-5 year Chapter 13 bankruptcy reorganization plan per court order or by the Trustee as repayment is not guaranteed to the credit card issuing financial institution. Even consumers interested in controlling discretionary spending are restricted to a debit card or prepaid card that doesn't really help a consumer to establish, enhance, or re-establish credit with a good repayment record for extended credit.
Financial Institutions interested in helping consumers better control discretionary spending and use of credit only have the debit card option but receive interchange income substantially less than for qualified credit card transactions (from a third to over half less)—thus requiring additional fees on the customer-cardholder. With recent banking reform legislation, such debit card interchange fees are expected to be even more significantly less. Other credit card options are limited in that customer cardholders may be tempted to over spend and over extend—thus defeating the goal of permitting the consumer to gain control over discretionary spending.